Why your benefits and group retirement plan should have different providers
Updated: Jun 4, 2020
“We like to have our benefits and retirement plan under the same roof”
This is a statement we hear from plan sponsors from time to time. Underpinning it is a perception of convenience and ease of administration. Closer scrutiny however, reveals that the real advantages of having group benefits and the retirement plan with the same provider are exaggerated. On the contrary, plan sponsors may find more value in keeping their benefits and retirement plans with different providers.
Some plan sponsors assume that using the same provider for benefits and the retirement plan leads to easier administration internally. What they fail to consider however is most organizations that provide both health/life insurance as well as retirement plans tend to be fairly large institutions. As a result, the services are generally offered by separate divisions, which, while technically part of the same organization, are largely autonomous.
The implication behind this for plan sponsors is that the representatives and/or account managers they deal with are generally not the same for each product line. So just like with different providers, plan sponsors would still have to meet separately with each representative. By the same token, billing is also not likely to be consolidated. After all, whereas benefits are largely paid for by the employer, retirement plan investment fees are generally deducted from the employees.
From the perspective of a payroll administrator, having the group retirement plan with the benefits provider is also of little consequence. Regardless of who the provider is, the process of deducting contributions from payroll likely remains exactly the same.
More difficult and disruptive plan changes
While there is fairly limited administrative advantage to having benefits and the retirement plan with the same provider, it can be argued that adopting the policy of bundling the two could actually create more administrative burden should a change of providers become necessary. Rather than having to go out to market for only the benefits or only the retirement plan, sponsors would presumably have to do both at the same time.
Not only does this mean double the effort for the individual/team leading the transition, it also increases the likelihood of the change being viewed as a disruption by the plan members. After all, they not only will have to get accustomed to their new benefits package but also have to change their investments. All these factors increase the likelihood of inertia setting in across the organization, and could make future changes less likely to occur even when warranted.
Specialist versus generalist
Another aspect plan sponsors may want to consider is the advantages of having a specialist provider as opposed to a generalist. Unlike the larger institutions that offer a myriad of services, a smaller more service-oriented provider focused on one area naturally has a stronger incentive to excel in that offering. After all, the success of that provider is inextricably linked to the strength of their service offering. Larger institutions on the other hand, may have competing priorities among the many divisions, with one service line receiving less focus than others depending on the organization’s strategic direction. Indeed, when it comes to providers of both benefits as well as retirement plans, there is a tendency to prioritize the former over the latter.
Potential conflict of interest
Last but certainly not least, it’s important that we consider the potential conflicts of interest that could arise from bundling the retirement plan with benefits. Providers that offer both services could upsell clients by offering a discount on benefits in return for also having the retirement plan through them. On the surface, this might appear harmless enough. But we must remember that the employer mostly pays for benefits whereas the retirement plan fees are generally paid for by the employees.
So unless the benefits provider is also offering the most competitive retirement plan (in terms of performance, service, fees, etc.) plan sponsors could be placing themselves in a situation where they are offering plan members an inferior retirement plan in return for cost savings on benefits. This certainly could undermine their role as a fiduciary as they are no longer acting in the best interests of plan members where the retirement plan is concerned.
When plan sponsors look beyond the marketing offered by the large institutions, they will likely see that there isn’t much to gain from bundling two services that are meant to be separate.
As a group retirement plan provider, Open Access is changing the way retirement plans are run by unburdening employees from the need to make investment decisions on their own and instead managing portfolios on their behalf. We do this as a fiduciary, meaning no proprietary products, zero conflicts of interest, and no hidden fees.